Journal of Banking & Finance Vol. 31 No. 3 2007
Competition without fungibility: Evidence from alternative market structures for derivatives
Abstract
In this paper, we compare option contracts from a traditional derivatives exchange to bank-issued options, also referred to as covered warrants. While bank-issued option markets and traditional derivatives exchanges exhibit significant structural differences such as the absence of a central counterparty for bank-issued options, they frequently exist side-by-side, and the empirical evidence shows that there is significant overlap in their product offerings although options are not fungible between the two markets. The empirical analysis indicates that bid-ask spreads in either market are lowered by 1–2% due to competition from the other market, providing evidence that the benefits of competing market structures are available in the absence of fungibility.
- DOI
- 10.1016/j.jbankfin.2006.02.004
- Volume
- 31
- Issue
- 3
- Pages
- 659-677
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib